U.S. beef packers are making record losses as the price they pay for cattle is outstripping what they earn on beef, private data showed on Friday. Analysts said the losses were record large and could force leading beef producers such as Tyson Foods Inc and JBS USA, a unit of Brazilian company JBS SA, to reduce cattle slaughter and beef production in a bid to lift beef prices. Read more at Reuters.com >>>
Source: “Cow-calf Corner”
by Derrell S. Peel, Oklahoma State University Extension livestock marketing specialist
The answer to that question is no …as long as markets are free to adjust prices. One of the most remarkable characteristics of a market economy is how rare it is to run out of most anything. It is easy to take for granted that anyone can walk into most any store, any time and find what they are looking for. It is really quite amazing! The secret is, of course, that market prices adjust to make sure that we don’t run out. Markets will almost never tell you that you can’t have something, but prices may rise so that you will decide you really don’t want it after all.
Agricultural markets rely especially heavily on this process. Unlike a manufactured product market, where inventory control plays a bigger role in maintaining market equilibrium, agricultural markets typically rely much more on prices to balance supply and demand.
Since much agricultural production – especially crops – are limited to an annual production cycle and total production is subject to the vagaries of weather on yields, demand must be adjusted to fit available supplies. Thus it is, for example, that a freeze in citrus regions quickly provokes higher prices for orange juice, not because we are immediately out but to ration demand and make sure we don’t run out of orange juice.
That leads to the real question implied by the title: What corn price will be needed to make sure we produce enough corn to meet our needs? This is an entirely different question.
In the last five years, the use of corn for industrial production has averaged 5.6 billion bushels, up 2.8 billion bushels, or double the previous five year average industrial use. In response, total corn production the last five years has averaged 12.6 billion bushels, up 20 percent over the 10.5 billion bushel average of the previous five years.
Other uses are impacted as well.
Interestingly, corn exports have averaged slightly higher, up about one percent the last five years compared to the previous five years. Global demand for corn is not easily bid out of the market. However, corn used directly for feed has decreased 12.5 percent, an average drop of 731 million bushels each of the last five years compared to the previous five years.
Of course, the availability of by-product feeds has offset part of the quantity of corn used for feed, but it is the primary corn market where values are determined.
So we have been able to meet our needs for corn the last five years but only at prices that are double to triple historical levels. The pressure on agricultural resources that results from increased corn production (including a 17 percent increase planted acres from 2006 to 2011) limits the ability to increase corn supply to meet growing demand without higher corn prices. Higher market prices are needed to expand production, as well as to limit corn demand among alternative uses.
It is possible that increasing yields will provide enough additional corn production to relieve some of the price pressure, but much of the yield trend of the last 30 years has been with hybrid and other technology that responded well to near-ideal production conditions and relied on cheap fuel and fertilizer. Expanded corn acreage is pulling in more land in areas where soil and climate are more marginal for corn production. Changing from 1:1 corn to soybean rotations to continuous corn or 2:1 corn to soybean rotations also reduces yield potential. In the absence of cheap inputs and with more use of sub-optimal production resources and systems, corn yield improvement is likely to be tempered in the coming years.
We will meet our needs for corn but it will likely take permanently higher prices to make sure we don’t run out.
Most of the time, market price adjustments are rather subtle and result in many small changes in decisions by businesses that maintain market equilibrium. This is much like the hundreds of small adjustments one makes constantly to steer an automobile down the highway. Occasionally the adjustments are more dramatic and cause significant and abrupt impacts in markets. In the case of corn, the reality of permanently higher corn prices is resulting in a series of short and long run adjustments in most other crop and livestock markets.
The beef industry, which has more ability than other livestock industries to adjust production systems in the face of higher corn prices, now faces the need to make those adjustments. This is a process that will take many years to fully complete and will shape how and where cattle production takes place in the country.
Source: U.S. Meat Export Federation
October was another excellent month for U.S. pork and beef exports, according to statistics released by USDA and compiled by the U.S. Meat Export Federation (USMEF). Pork exports set a new all-time monthly value record at $573.9 million (up 41 percent from last year), which pushed the cumulative value through October to a new annual record of $4.93 billion – breaking the previous high of $4.88 billion in 2008 – with two months to spare.
Beef export value for October was $452 million, pushing the 2011 total to a new annual record of $4.49 billion. This is 37 percent ahead of the then-record pace established in the first 10 months of 2010.
“Establishing new annual value records just 10 months into the year is an extraordinary accomplishment, and one that the U.S. pork and beef industries should be very proud of,” said USMEF President and CEO Philip Seng. “Sustaining an aggressive export pace is critical for maintaining and creating American jobs and a positive balance of trade.”
Beef exports soaring to nearly every region; per-head value exceeds $200
October beef export volume was 105,912 metric tons. This was 10 percent higher than October 2010 and pushed the 2011 volume total (1.073 million metric tons) 24 percent ahead of last year’s pace. October beef exports equated to 11 percent of beef muscle cut production and 13.9 percent of total production when including variety meat, which was consistent with the year-to-date ratio. This compares to 9 percent of beef muscle cut production and 11.7 percent of beef plus beef variety meat production exported last year.
Exports equated to nearly $210 per head of fed slaughter in October, pushing the 2011 total to $202.82 per head. This is nearly $50 per head higher than last year’s average of $153.09.
Despite being down slightly in October, Mexico remains this year’s leading volume destination for U.S. beef at 213,004 (up 6 percent over the first 10 months of 2010). Mexico was the export value leader in October at $85.3 million, pushing the 2011 total 25 percent higher than last year at $818.2 million.
Canada held its position as the top value market for U.S. beef in the first 10 months of 2011 at $861.9 million (a new annual record), up 46 percent over the 2010 pace. Volume for the year is up nearly 30 percent to 159,396 metric tons, also a new record. October results were impressive, with a volume of 14,175 metric tons valued at just under $74 million.
Japan is the third-largest individual market in terms of both volume (133,870 metric tons) and value ($726.9 million). These totals exceed last year’s pace by 30 percent and 38 percent, respectively. October export volume was down slightly from last year at 12,631 metric tons, but value was 13 percent higher at $73.7 million.
Beef exports to South Korea maintained a very strong pace, pushing the 2011 volume to 129,810 metric tons (up 43 percent from last year) valued at nearly $575 million up (36 percent).
“The continued rebuilding of consumer confidence in U.S. beef in both Japan and Korea is essential as these key markets recover sales volume and value that was lost in the post-BSE years,” said Seng. “The ‘We Care’ campaign in Japan and the ‘To Trust’ campaign in Korea have sown seeds that continue to yield positive results for the U.S. industry.”
Strong exports to Egypt helped push the Middle East to an impressive 2011 volume of 145,457 metric tons, valued at $287.7 million – increases of 39 percent and 44 percent, respectively, over last year’s pace and setting new annuals records for both volume and value.
Exports to Russia set a new value record at $222.3 million, which exceeds last year’s pace by 66 percent. Strong export performance in Russia has allowed the United States to already fill its 2011 tariff rate quota for beef muscle cuts of 42,700 metric tons.
Exports to the Central and South America region have also set new annual volume and value records of 21,418 metric tons valued at $66.3 million, led by strong growth to Chile, Peru and Guatemala.
Complete export statistics, including pork and lamb numbers, are available online through the USMEF.
Source: Texas Department of Agriculture
In an effort to sustain Texas’ standing as a powerhouse of agricultural productivity, Agriculture Commissioner Todd Staples announced Monday the Texas Agricultural Finance Authority (TAFA) has awarded $150,000 in the form of matching grants to 15 young farmers.
The funds, in the amount of $10,000 each, are awarded through the Young Farmer Grant Program to farmers ages 18-46 who will create or expand agricultural businesses in Texas. Texas farmers fund the program through farm vehicle registration fees.
“According to USDA, the average age of a principal owner of a Texas farm or ranch is 59 years old with only 6 percent under the age of 35,” Staples said. “As today’s farmers and ranchers near retirement, we must find ways to support a younger generation that will be tasked with feeding a growing population. The Young Farmer Grant Program, which is funded entirely by Texas farmers and ranchers, offers user-friendly, effective financing options that can help new and young operators get started and become more firmly established.”
In 2009, the 81st Texas Legislature approved the Texas Department of Agriculture’s proposal for TAFA to establish the first-of-its-kind Young Farmer Grant Program. Since TAFA’s creation in 1987, the program has provided financial assistance to individuals and businesses through partnerships with banks or other agricultural lending institutions.